How do economic/financial magazines justify their existence?

Great Debates
1

Magazines like the Economist, Forbes, Fortune, etc are filled with articles describing where the economy is and where it is headed (and where some companies & industries are and where they are headed)

But, for us to feel the need to read these articles, these magazines should prove that they are authorities on the subject and understand the economy.

It seems to me that they don’t really understand it though. In 2000, **after **the dot-com crash, they were filled with articles explaining how it happened and how it was practically inevitable. Well, if it was so obvious, why weren’t these magazines filled with articles predicting the dot-com crash?

Same with the economy today. Magazines are filled with articles explaining how it all happened (sub-prime mortgages, mortgage-backed securities, CDO’s, CDS’s, etc) and how, once you know the whole story, it was **bound **to collapse. Well, if it was bound to collapse, or even highly likely to come crashing down, why weren’t these magazines filled with articles about the coming collapse before it happened?

It’s like if you have a car and you keep making some major modifications to it, to improve its performance. You keep taking it to the mechanic once a month, who checks the car and declares it to be in good shape. Then, one day, your car explodes. You talk to your mechanic and he says, “well, of course it exploded, you added to much crap to it, it was bound to explode”. Well, why didn’t the mechanic tell you so before your car exploded, if he’s such a knowledgeable person about cars?

Same with these economic/financial magazines. If they are so knowledgeable about the economy, why weren’t they clear that this was a coming catastrophe?
It seems to be that either
a) They didn’t know because they are not that knowledgeable, in which case I shouldn’t be reading them
or
b) They did know, but due to their personal/financial interests, they didn’t want to tell anyone, in which case, again, I shouldn’t be reading them (because how can I know if what they are saying today is not correct, but simply put there to further the agenda of the authors)

What do you guys think? How do economic/financial magazines justify their existence, given the dearth of predictions before the fact and abundance of “explanations” after the fact?

2

By making money.

3

Snake oil salesmen also make money, but that doesn’t mean they know shit about human health.

4

You must be joking. Do you actually read any of those magazines you refer to?

  1. Go online and read the Economist and Barron’s sometime. Like, right now. Most of it is free.

  2. What % of the articles do you think are ‘predicting the economy’? There are some, but it’s hardly a majority. Many of the articles are filled with fact-based and somewhat dry reporting about stock price trends, the state of the credit markets, commodities supply and other financial goings-on.

  3. You will find a number of articles polling or interviewing experts on opinions. These are usually clearly caveated as such. Editorials and/or personal opinion, that is. Unlike say, front-page articles in the New York Times that make no attempt to do so.

  4. I’m not going to do a search for cites right now, but you probably can if you want to. The Economist has been railing against Greenspan and its policy of negative real interest rates for years, saying that an asset-inflationboom/bust was inevitable. Fortune ran a whole series of articles a few years ago on how the house-price appreciation bubble was unsustainable.

In summary, a combination of well-researched fact, combined with clearly delineated opinion from time-to-time, on a specific subject matter that allows an intelligent and informed reader to make up his mind on his own.

Do you honestly think the Economist and Barron’s are selling ‘snake oil’? If so, what ‘snake oil’ do you think that is?

My observation is that people who buy snake oil are as much to blame as the seller, for being naive enough to believe someone’s claim that he/she has the answer to their problem. There’s a lot of that going around right now, it seems.

5

Do you avoid political magazines because they don’t say who will win the next election? Do you avoid the weather channel since they can’t tell you how cold it’s going to be next month?

No magazine is every going to be able to completely and effectively analyze something as complex as “the economy of the entire world.” And they certainly aren’t going to be able to predict the future.

What they do do is focus on individual factors. I read the Economist because it has some of the most intelligent international political reporting out there. They look in depth at countries that most news sources just completely skip over. It’s entertaining and I learn something new each issue. But it’d be stupid to plan my life around what they say.

Magazines don’t have the power to change the future, either. The Economist, at least, has been printing regular warnings about the economy for at least a couple years before stuff really got fucked. They had stuff about the sub-prime mortgage crisis quite a while before this stuff hit the mainstream. But we didn’t get in this mess by using our heads. It’s like the guy who gets diagnosed with lung cancer and keeps on smoking. Just because you know you are on the road to ruin doesn’t mean you are going to change your ways. We all read those articles, shrugged our shoulders, and went on our merry way, probably forgetting them immediately after reading them.

6

The economist is simply one of the best magazines around. They do make mistakes sometimes, but are usually open and frank about it. When I was studying economics I had one class in which we were pretty much instructed to read the economist weekly and also had to write a paper that was similar to The Economist articles (mind you, this was to do something different from the usual scientific papers).

Also, at the Political Science department I’m doing my PhD with now most people read it/have subscriptions and there is always a latest copy hanging around the common room (place for staff to talk to students/get coffee/bulshit about the wheather/read the economist).
I can’t speak for the others, but believe me The Economist knows what it is talking about.
I think you expect a bit too much from popular magzines, if you expect them to predict everything that will happen in the economy. Don’t forget there weren’t that many proffesional economists that have predicted what happened.

7

I subscribe to it and without doubt it is the best weekly current affairs magazine. It makes Newsweek and Time look like sub-teen comics.

And informed people, not just in the Economist, have been warning about the current financial catastrophe for years. I’ve known it’s been coming for years. It was obvious to anyone not blinded by their worship of free market ideology that we’ve been playing pass the parcel with bundled debt time-bombs.

Bubbles always burst. Economies built around increasing debt will inevitably collapse.

8

Investment strategy and clairvoyance are two different things. Many of the financial collapses were done by hiding financial information from the public, which includes the magazines.

Financial magazines also go into basic financial planning. I was 5 years into my mortgage before I ran the numbers for accelerated payments. I discovered I could have paid my house off during those first 5 years. I wasted the interest payments over the next 5 years for lack of that information.

9

Indeed. Debt-fueled bubbles always burst.

But they have nothing to do with ‘worship of free-market idealogy’. They are a result of fiat money and artificially low interest rates and/or government overborrowing. Try not to mix apples and oranges.

10

Yes it does. As manifested in the ‘light touch’ approach to regulating markets.

FSA chairman blames light touch

The UK’s own uniquely incompetent Labour Govt was precisely in thrall to free market ideology with catastrophic results.

11

I agree with everything in your post except this. The New York Times clearly marks pieces on the front page with opinions as analysis. Pieces of reporting, in any newspaper or magazine, will always be affected by the opinions of the reporter and the paper to some extent. That is why it is good to read more then one paper and more then one magazine, and why it is good to have a diversity of articles. Thinking any reporting is totally unbiased is a fantasy.

12

All bubbles burst. The tech bubble was not especially debt-fueled. Debt-fueled ones may make more of a mess when they burst, though.

13

Replies to various points raised above
[ul]
[li]My car mechanic doesn’t have to be “clairvoyant” to know that my car has a high likelihood of blowing up if I add a bunch of dangerous chemicals to the gas tank to improve performance.[/li]
[li]Human psychology is indeed hard to accurately predict, but the list of things that comprised the cause of this crisis was a finite set of things (sub-prime mortgages, mortgage-backed securities, CDO’s, CDS’s, etc) and so the many people who understood how all these worked should have known of the danger of a catastrophe[/li]
[li]Predicting that the course we were on could have led to catastrophe was not an impossible task. A small number of economists did predict it. One example is someone others called Dr. Doom, because he was predicting collapse, and people thought he was just being a Cassandra[/li]
From NPR

Also, here’s an article in Newsweekabout him

[li]People with knowledge in these matters should be able to see the signs, because we have been down this road before:[/li]
I was checking into past crises, and found this under the "Savings and loan crisis"page, on the causes of the crisis

Also, from the Asian crisis of the 90’s

Gee, do any of these sound familiar?

[li]These magazines do have articles that posit predictions of what will happen to the economy as a result of this or that policy by the government, or as a result of some other event.[/li]
Here is just one example from today’s online Economist

Prediction of potential catastrophe. Why no such prediction about US financial catastrophe?

Detailed analysis of potential sources of catastrophe. Again, why no such detailed analysis of a potential US financial catastrophe *before *it happened?
[/ul]

14

How much do you read the Economist? As several posters have mentioned they did warn about problems in the financial sector before the current crisis. They also warned about the late 90’s stock-market bubble before it burst.

15

I read the Economist quite frequently. It is an excellent magazine with great articles.

But, from what I remember, even when it mentioned the potential problems with sub-prime mortgages, it failed to do two things:

  1. Tie everything together (sub-prime mortgages, mortgage-backed securities, CDO’s, CDS’s, etc) into a cohesive theory that showed that the combinations of all these things was forming a perfect storm and that we are headed for disaster.

Now, after the fact, everyone is chiming in with their analysis of how the perfect storm was formed, but I assume these people knew about all these instruments before the collapse.

As I recall, the articles were warning about sub-prime mortgages and some ripple effects they may have on the economy, and potentially cause problems, but I don’t recall seeing a cohesive theory how all these came together until after the crisis happened.

  1. It never had strong warnings of the type

If people were aware of the potential catastrophe, they should have had continuous front-page coverage of the type

If you have links to show that they had
[ol]
[li]A cohesive theory about how all these instruments would work together to cause problems[/li][li]Prominent articles that put the potential for catastrophe in no uncertain terms[/li][/ol]
*before *the current crisis, then I am willing to concede that I may not be remembering the coverage fairly.

16

The first is pretty unrealistic. It’s very very hard to create in advance a “cohesive theory” which predicts complex economic patterns. Certainly I don’t think there is any economist who understood in advance how each of the elements of the current crisis would feed into each other. You can’t expect a magazine to do this. What you can expect a magazine to do is see the warning signs in say the housing market and warn of potential disaster. That is exactly what the Economist did on numerous occasions. Just run a search for “housing bubble” between say 2004 and 2007. For example there is an article from 2005 which says:

You can’t get more emphatic than that.

17

I’m a hard core free market advocate and I knew we were headed for a real estate collapse when my best friend bought a $600,000 townhouse and, when I expressed amazement at the price, said with 100% sincerity, “Oh, the prices in California will never go down. Never.”

The idea that this collapse is a big surprise is a big load. And no, it’s not free market advocates who were exclusively blind to it. The entire government and the entire financial industry just chose to ignore it because, hey, they could make money off it.

You might be asking for a little more than is reasonable to expect. “Subject matter expert” does not equal “Psychic.”

It’s simply not possible to perfectly guess this stuff with universal accuracy, and anyone who says it is is a liar or a fool. Chaos theory and all that, ya know. The sum total of the positions of reputable publications was that big trouble was brewing, and they were right.

Because there isn’t going to be a catastrophe in the United States and nobody ever seriously expected one. When they say catastrophe, they mean CATASTROPHE, not a recession. Something that is merely bad and unfortunate is not catastrophic; “catastrophe” means ruinous and disastrous. In Eastern Europe, we’re talking about the possibility of the **utter collapse **of economies, one or more governments collapsing, the sort of thing that could very possibly lead to civil disorder and open warfare. That’s a catastrophe. There’s not really much possibility of that happening in the USA - there’s going to be a recession but the country will slog through it and come out okay in a few years, just like the last recession. That’s not a “catastrophe.”